Planning for Success Reasoned Expectations For New Nuclear Plant Construction Kansas Corporation Commission February 28, 2008.

Planning for SuccessReasoned ExpectationsFor New Nuclear Plant Construction

Kansas Corporation CommissionFebruary 28, 2008

Today’s Briefing

Review of 2007 operating performance New nuclear plants: progress and

expectations Understanding and managing the risks

of new nuclear plant construction The challenges A future perspective for Kansas

Review of 2007

Operating Performance

60

65

70

75

80

85

90

95

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

Sustained Reliability and Productivity

Sources: Global Energy Decisions , Energy Information Administration, NEI estimate for 2007

U.S. Nuclear Plant Average Capacity Factor

91.8% in 2007

89.6% in 2006

89.3% in 2005

90.1% in 2004

87.9% in 2003

90.3% in 2002

89.4% in 2001

88.1% in 2000

Highlights

Fewer outages in 2007 (55 in 2007, 65 in 2006)

Average outage duration in 2007 = 40.5 days

500

550

600

650

700

750

800

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

Sources: Global Energy Decisions Energy Information Administration, U.S. Nuclear Regulatory Commission, NEI estimate for 2007

Output at Record LevelsU.S. Nuclear Generation (billion kilowatt-hours)

billion kilowatt-hours807 in 2007787 in 2006 782 in 2005789 in 2004764 in 2003780 in 2002769 in 2001754 in 2000

Highlights

5,222 MW of power uprates approved

912 MW of uprates pending

1,751 MW of uprates expected

0

5

10

15

20

25

30

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

Sources: Global Energy Decisions, NEI estimate for 2007

Solid Economic Performance Continues

U.S. Nuclear Production Cost (2007 $ per MWh)

2007: $16.80/MWh

2006: $17.70/MWh

2005: $18.10/MWh

2004: $18.90/MWh

Solid Margins

$16.80/MWh production cost implies busbar cost of $22-23/MWh

Average prices in selected power markets in 2007:

Entergy $46.71/MWh

ERCOT $49.71/MWh

NEPOOL $69.12/MWh

NYISO $68.62/MWh

PJM West $59.84/MWh

48 Granted

15 Under NRC Review

6 Filed in 2007

32 Intend to Renew

Source: U.S. Nuclear Regulatory Commission

9 Unannounced

Other Key Highlights From 2007

… And Plant Restarts

TVA’s Browns Ferry 1 back in service

May 2007 (5-year, $1.8 billion project)

TVA approved Watts Bar 2 completion

August 2007 (5-year, $2.5 billion project)

License Renewals Continue ...

New Nuclear Plants:

Progress and Expectations

Progress Toward New Plant Development

2007 2008 2009 2010 2011

3 early site permits approved - Dominion - Exelon - Entergy

2 design certifications submitted - GE ESBWR - AREVA EPR

5 COL applications submitted - NRG - TVA - Dominion - Duke - Constellation/ UniStar

Mitsubishi APWR design certification submitted 11-15 COL applications expected

Southern early site permit approved GE ESBWR design certification issued Additional COL applications submitted

2 design certifications issued - AREVA EPR - Mitsubishi

APWR

First COLs granted - NRG - TVA - Dominion - Duke - Constellation/

UniStar

The First Wave:From COLA to Commercial

Operation

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

COL review

Order long-lead items

Construction

Site preparation

Arrange financing

COL Approval

Load fuel

COL submitted

Start-up testing (4-6 months)

Commercial operation

Pre-COL construction

Expectations for the Future

2010 2012 2014 2016 20202018

Suppliers ramp up component manufacturing capability

Second wave begins construction when it is clear that first wave can be licensed and built on time and within budget

Initial wave: 4-8 plants on lineby 2015-16

Second wave under license

review, conducting pre-COL site work

A Realistic Perspective

Most projects still in early stages of development

Should expect …

– changes in project ownership and structure

– decisions deferred pending clarity on cost, other factors

– decisions to suspend project development Positive signal: companies will not proceed

unless they are confident that all risks identified, removed, mitigated

Managing the Risks of New Nuclear Plant

Construction

In Retrospect ...“The Perfect Storm”

Rapidly changing technology and regulatory requirements

Poorly designed, poorly implemented two-step licensing process

Poor project management Adverse business conditions

Then and Now: The Biggest Difference

The 1970s and 1980s– Cost overruns, schedule delays

– Capacity factors in mid-50% range

– Refueling outages 100-plus days

Today– Major overhauls, plant restarts on

time, on budget

– Capacity factors in the 90% range

– Refueling outages 20-30 days

The industry

operating to

today’s high

standards is

the industry

that will

build new

nuclear

plants.

Focused, Coordinated ProgramTo Manage the Risks

Started more than a decade ago

Performed systematic assessment of what went wrong

Approached new nuclear construction as risk-management exercise

Assembled hundreds of industry experts in strategic areas

Removing Risk From the Licensing Process

Restructured licensing process

Mature technology, stable regulatory requirements

Streamlined hearing procedures

More oversight of licensing boards

Design-centered review groups and standardization

“Sign-as-you-go” ITAAC verification

High threshold, limited window for intervention after COL approval

Old Two-Step Licensing Process(10 CFR Part 50)

Construction permit

application

Construction

Operating license

application

Operation

Hearing* Hearing*

*Potential for challenge

New COL Process Reduces Uncertainty

(10 CFR Part 52)

COL application and review

References a certified design; may reference an early site

permit

Hearing

Construction

Inspections, Tests,

Analyses and Acceptance

Criteria (ITAAC) review

Operation

Potential for challenge, but major capital investment

has not occurred

High threshold for hearing (must prove ITAAC have not been or will not be met)

and narrow scope if it occurs

Potential hearing

Project Management: Lessons Learned Provide Road Map for

Success Detailed design complete before construction

Integrated engineering and construction schedules

Standardization

Focus on quality assurance

Safety-conscious work environment: effective

corrective action, worker concern programs

Improved planning and construction management

tools

Improved construction techniques

Successful Project Management:Browns Ferry 1

As complex as building a new plant

5-year, $1.834 billion project completed on time and within budget estimate

Refurbished or replaced nearly all systems, components

Simultaneously completed extended power uprate

Successful Project Management:Fort Calhoun Overhaul

Replaced many major components

Completed refueling outage at the same time

$417 million project completed approximately $40 million under budget, 5 days ahead of schedule

Supply Chain Starting to Respond

Supply chain adequate for “first wave” Long-lead materials (e.g., forgings)

already fabricated or ordered for first wave Component manufacturing will respond to

sustained demand Early signs that suppliers are gearing up

Addressing the Work Force Challenge

Nuclear engineering enrollments up dramatically– Undergraduate: from 470 in the 1998-99 academic year to

1,933 in 2006-07

– Graduate: from 220 in the 1998-99 academic year to 1,153 in

the 2006-07 academic year

Joint initiatives with organized labor and the

Departments of Labor, Education, Defense

Industry-community college programs in 14

states

Skilled crafts: collaborative programs in 10

states

Economics of New Baseload

New baseload capacity will be expensive

With financial incentives, busbar costs for first new nuclear plants are in the $70-80/MWh range

– Loan guarantees from the federal government

– Supportive rate policies at the state level

New nuclear plants will be competitive with other new sources of baseload electricity

The Challenges

Uncertainties Remain ...

New licensing process untested

New administration, Congress in 2009

Will escalation of input costs continue?

No firm capital costs for nuclear (or anything else)

Commercial terms (e.g., EPC contracts) tough to negotiate

Large financial commitment for relatively small companies

... But the Uncertainties Are Hedged

More efficient, predictable licensing process Industry has clear understanding of what went

wrong the last time Unmistakable need for new baseload capacity Bipartisan political support Strong public support Solid support from labor, growing support from

environmental community Growing concern about carbon emissions

The Bottom Line

Measured approach to new nuclear plant construction

New coal-fired capacity faces challenges

– 28,500 megawatts announced 2006-07

– 22,300 megawatts canceled

No new nuclear capacity before 2015-16, and then ramps up slowly

More gas-fired capacity to fill supply/demand gap

Continued safe, reliable operation of existing plants, continued profitability

Looking to the Future:

A Kansas Perspective

Kansas Electricity Generation Fuel Shares 2006

Source: Global Energy Decisions / Energy Information Administration

Updated: 2/08

Gas

4.0%

Oil

0.1%

Nuclear

20.6%

Renewable

and Other2.1%

Coal

73.2%

45.3

62.8

2006 2030*

Kansas Electricity Generation2006 and 2030, BkWh

* Assumption based on the Southwest Power Pool regional electricity generation growth forecasted by Energy Information Administration’s Annual Energy Outlook 2007

Source: Global Energy Decisions / Energy Information Administration

Updated: 2/08

39% increase in generation

by 2030*

36.2

49.1

2006 2030*

Kansas Electric Sector CO2 Emissions

2006 and 2030, Million Metric Tons

36% increase in CO2

emissions by 2030*

* Assumption based on the Southwest Power Pool regional emission rate increase forecasted by Energy Information Administration’s Annual Energy Outlook 2007

Source: Global Energy Decisions / Energy Information Administration

Updated: 2/08

Potential Benefits From One New Nuclear Reactor in Kansas

A new nuclear reactor (1,350 MW) for KS could meet more than half of the generation demand increase forecasted for 2030

The new unit would avoid about 8 million metric tons of CO2 annually, equal to the

emissions from 1.6 million passenger cars!

Planning for SuccessReasoned ExpectationsFor New Nuclear Plant Construction